Question

Ch.11 Current Liabilities

Explain the two basic entries for payroll.

Answer 1

There is two entry made for payroll : (1) gross wages (2) employer's portion of the payroll tax.

1. Gross wages include the portion payable to employees (it is known as net pay or amount payable to the government or third party on behalf of the employee such as federal income taxes withheld, social security taxes withheld, Medicare tax, etc.
2. The employer's portion of payroll tax includes the social security taxes withheld, Medicare tax, federal unemployment taxes payable, and state unemployment taxes payable.

Let's take one example.

• The total gross wages of the month are 50000 and the employee withheld income tax is 4500.
• Employee's Social Security taxes payable is 3000 and the same contribution made by the employer.
• Employee's Medicare tax payable is 600 and the same contribution made by the employer.
• Federal unemployment taxes payable is 200 and state unemployment taxes payable 1800.

Journal entry

Journal entry
Entry	Description	Debit	Credit
1	Wages expense	$       50,000
	Federal income taxes withheld payable		$            4,500
	Social security taxes payable		$            3,000
	Medicare tax payable		$                600
	Wages payable (50000-4500-3000-600) (Known as net pay)		$          41,900
	To record wages expense and other related liabilities.
2	Payroll taxes expense	$          5,600
	Social Security taxes payable		$            3,000
	Medicare tax payable		$                600
	Federal unemployment taxes payable		$                200
	State unemployment taxes payable		$            1,800
	To record payroll taxes expense.